Failures in Application Development Outsourcing Contracts: The Affect of Service Quality, Relationship Quality, Satisfaction, and Switching Costs Dwayne Whitten Baylor University firstname.lastname@example.org Although outsourcing has increased over the last two decades (Lee and Kim, 1999), an estimated thirty-four (34%) of outsourcing contracts have failed, i.e., have resulted in switching to another vendor or backsourcing, the return of previously outsourced functions to in-house resources (Lacity and Willcocks, 2002). Lacity and Willcocks (2000) have called for a thorough evaluation of outsourcing failures as one of the new directions for outsourcing research. A literature review reveals that little work has been completed in this important new area for further research. Grover, Cheon, and Teng (1996) studied the relationship of the five outsourcing components (application development and maintenance, systems operations, telecommunications and networks management, end-user support, and systems planning and management) with outsourcing success, as well as the effect of service quality on the relationships between the outsourcing components and outsourcing success. Results indicated that outsourcing is more successful with systems operations and telecommunications. Their research found application development and maintenance to be more prone to failure than highly structured commodity services such as systems operations, telecommunications and networks management. Therefore, in this study of outsourcing failure, the application development and maintenance component was selected. Factors associated with the decision to discontinue these contracts, or more specifically switch vendors or backsource, will be studied using a survey administered to top computer executives across the United States whose job titles are analogous to Manager or Vice President of Application Development. The survey is based on previously validated instruments for measuring service quality (SERVQUAL) and satisfaction (UIS). Switching costs and relationship quality will be measured using slightly modified instruments from Jones, Mothersbaugh, and Beatty (2002) and Lee and Kim (1999) respectively. The following hypotheses will be tested: H1: Service quality is negatively associated with the decision to discontinue an application development outsourcing contract. H2: Satisfaction is negatively associated with the decision to discontinue an application development outsourcing contract. H3: Relationship quality is negatively associated with the decision to discontinue an application development outsourcing contract. H4: Switching costs are negatively associated with the decision to discontinue an application development outsourcing contract. Components of service quality include reliability, responsiveness, assurance, and empathy. Relationship quality is comprised of trust, commitment, communication quality, cultural compatibility, and interdependence. Satisfaction components include outsourcing vendor staff and services, outsourcing vendor services, information output, and knowledge and involvement. Switching costs include both tangible and intangible costs. By better understanding the factors that may lead to outsourcing failure, outsourcing vendors can increase the success rate of outsourcing agreements and companies can make better outsourcing decisions. In addition, this research will provide an analysis of backsourcing and vendor switches, two increasingly important new areas of research.
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